BackGail scraps LNG shipping tender yet again
Gail scraps LNG shipping tender, the second in less than two years, to hire as many as nine new such ships from global fleet owners to transport gas from the US
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Bengaluru: India’s bid to construct liquefied natural gas (LNG) carriers locally under the Make in India plan has collapsed yet again, with state-run natural gas firm GAIL (India) Ltd scrapping a tender—the second in less than two years—to hire as many as nine new such ships from global fleet owners to transport gas from the US.
Two Japanese-led consortiums had submitted bids before the 15 October deadline set by GAIL, which contended that the two groups had submitted deviations to the tender terms that were not permissible. The bidding groups want GAIL to spare them from paying huge penalties arising from potential non-performance of the Indian-built LNG tankers—essentially they want GAIL to assume a larger share of the potential risks on locally built ships.
“The tender is closed," an official with one of the two bidding groups said, asking not to be named because he is not authorized to speak to the media. “It is no longer valid," he said, adding that the government could not decide on a request from GAIL on what to do with the deviations even after the bid validity was extended by a fortnight on 30 September.
Confirming the development, a GAIL official said that the company would come out with a fresh tender to hire the ships but whether that will incorporate the stipulation to build part of the ships in India was yet to be decided. “These issues are still being discussed," the official said, requesting anonymity.
A spokesperson for GAIL could not immediately be reached for comment.
A consortium of Mitsui O.S.K. Lines Ltd (MOL)-Nippon Yusen Kabushiki Kaisha Ltd (NYK Line) and Mitsui and Co. Ltd and another group comprising Mitsubishi Corp.-Kawasaki Kisen Kaisha Ltd (K Line)-GasLog Ltd and Foresight Ltd applied for one of the most sought after shipping tenders globally.
The contract, estimated to be worth $7 billion, involved hiring nine new LNG tankers for shipping 5.8 million metric tonnes per annum (mmtpa) of gas from the US.
GAIL will not order the ships directly at shipyards—both overseas and Indian. It plans to hire the LNG carriers from global fleet owners who will have to construct three of the nine tankers in India as part of the ‘Make in India’ plan of Prime Minister Narendra Modi.
In today’s market, it costs more than $200 million to build an LNG ship from scratch.
India’s state-run Cochin Shipyard Ltd is the only local yard that has fulfilled the eligibility criteria set by GAIL to build the LNG tankers. It has signed a technology collaboration pact with South Korea’s Samsung Heavy Industries Co. Ltd to build the LNG ships. It has also secured a licence from GTT, France, to use its patented Mark-III LNG containment systems.
Oil minister Dharmendra Pradhan told Parliament recently that the first tender issued in 2014 had to be scrapped because none of the qualified foreign shipyards were able to sign binding collaboration pacts with an Indian shipyard for transferring LNG shipbuilding technology when the deadline for submitting bids ended after three extensions.
In the second round of tendering, seven of the top global LNG ship owners formed two separate consortia to put in bids. But there were differences between GAIL and the bidders on sharing of risks on Indian-built LNG carriers.
The tender terms, according to the bidding groups, loaded all risks on Indian-built LNG ships on to them. GAIL, on its part, was not willing to assume those risks.
“Make in India can work if both GAIL and the government extend support to the fleet owners," said an executive associated with one of the bidding groups.
“Make in India is not only one party’s headache. GAIL/government cannot say that you are getting business so you take all the risks for Make in India. It has to be a collaborative effort. The government, GAIL and lenders have to come together. You cannot treat a tender at par for LNG ships to be built at experienced South Korean yards and those to be built at an Indian yard for the first time. Wherever LNG carriers are built for the first time, strong support was extended by the government—be it in China, Korea or Japan. It does need the support of everybody," the executive said.
A shipbuilding executive closely associated with the bidding process, however, said that the concerns raised by the bidding groups on Indian-built ships were unfounded. “Cochin Shipyard would build the carriers based on design provided by Samsung Heavy Industries and LNG containment systems licensed from GTT. Hence, the perception on quality and risk concerns expressed by bidders are misplaced," the executive said. He too declined to be named.
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